Banking

Investors loosen up after stress tests

Correction: An earlier version of this story incorrectly reported that Bank of America had priced a common-stock offering at $8.79 a share. Instead, the 1.25 billion shares of common stock will be sold over time at market prices.

BOSTON (MarketWatch) -- The U.S. financial sector ended the week on a bullish note as the results of the government's stress tests on the nation's largest banks contained few nasty surprises for investors.

Federal regulators released the results of the eagerly anticipated examination of banks' balance sheets late Thursday. The government ordered 10 financial institutions to raise a collective $74.7 billion to cover capital shortfalls and said banks' credit losses over the next two years could hit $600 billion. See full story on stress-test results.

Some regional banks were sharply higher on relief the companies won't need to raise as much capital as many had expected. Shares of Fifth Third Bancorp
FITB, -0.44%
surged nearly 60%. Huntington Bancshares Inc.
HBAN, -1.06%
rallied more than 30% and Marshall & Ilsley Corp.
MI
added about 28%.

Several of the nation's biggest banks Friday morning announced plans to offer common stock to buffer their capital positions.

Bank of America Corp.
BAC, -0.42%
on Friday moved to offer 1.25 billion shares of common stock. The government has told Bank of America it needs to raise about $34 billion to make up for a capital shortfall. The company plans to periodically sell shares, rather than a single offering. Bank of America shares gained roughly 5% on Friday.

The banking giant's chief executive, Ken Lewis, during a television interview Friday said the stress tests were "pretty aggressive" and outlined the company's plans to boost capital. See related article.

B. of A.'s board is looking for new directors following a shareholder vote that mandated the separation of the chief executive and chairman positions at the bank, The Wall Street Journal reported Friday.

Morgan Stanley
MS, -0.57%
in a regulatory filing Friday set an initial price of $24 a share for its planned offering of 146 million shares. The bank needs to raise $1.8 billion in new funds, based on the test results.

Also, Wells Fargo & Co.
WFC, -0.72%
said Friday that it has priced a $7.5 billion offering of 341 million shares at $22 a share. Wells has been told it has to generate $13.7 billion in new capital.

Jobs and earnings

The financial sector moved higher Friday in the wake of a report that showed nonfarm payrolls fell 539,000 in April as the unemployment rate rose to a multidecade high of 8.9%. See Economic Report.

On the earnings front, Fannie Mae
FNM, -0.72%
reported a wider quarterly loss. The company said its first-quarter loss totaled $23.2 billion, or $4.09 a share, compared with a loss of $2.2 billion, or $2.57 a share, in the year-earlier period.

The mortgage-finance giant, which has been placed in government conservatorship, said its quarterly loss was driven by $20.9 billion in credit-related expenses, securities impairments of $5.7 billion, and fair-value losses of $1.5 billion.

Fannie said its results were hurt by "persistent deterioration in housing, mortgage, financial and credit markets."

Fannie has asked for an additional $19 billion from the Treasury Department, the firm revealed on Friday, as a result of its first-quarter loss. "Due to current trends in the housing and financial markets, we expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from the Treasury," it said.

American International Group Inc.
AIG, +0.08%
reported a net loss of $4.35 billion for the first quarter late Thursday as the government-controlled insurance giant wrote down the value of troubled assets further.

In other financial news, Stephen Friedman, the former chief executive of Goldman Sachs Group Inc.
GS, -1.70%
has resigned as chairman of the Federal Reserve Bank of New York. Read more.

Congress should create a committee of different agencies to oversee the creation of rules to limit systemic risk in the markets, Securities and Exchange Commission Chairwoman Mary Schapiro said Friday. See full coverage.

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